Top Reasons for Home Loan Rejection

Reasons for Home Loan Rejection

Check Top 10 Reasons for Home Loan Rejections

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Buying a home can be an exhilarating experience. However, it can prove to become quite stressful since straight from selecting the property to gathering the funds, the entire process can sometimes take months, if not years. Even gathering the funds has to be done in a manner where it does not have an impact on the rest of your finances. In such cases, home loans are often the best mode of availing the funds to purchase your dream home.

 

However, there may be situations where your home loan application is rejected. Instead of applying for a home and then worrying about “what if my home loan is rejected,” it is best to proactively understand the different home loan rejection reasons and take measures to avoid it. Home loan rejections can happen for several reasons and below are listed 10 of the most common home loan rejection reasons.

Some Common Reasons for Rejection of Home Loan

  1. Low Credit Score or Credit Report Errors: Your credit score has a huge part to play in whether your housing loan application gets approved. If your credit or CIBIL score is too low, lenders are bound to turn down your home loan application. Since it denotes your creditworthiness, a low credit score could signal to a potential lender that you may not be reliable in terms of loan repayment. Additionally, if your credit report has errors or the information is incorrect, this may also be a reason for home loan rejection. It is important to keep an eye on your credit report and ensure no errors are present.

  2. Delays in Loans you Guaranteed: It is important to keep track of the loans you have guaranteed for other people, such as your friends, family, or even distant relatives. Even if you are prompt in making repayments, but there are delays in the loans guaranteed by you, it may reflect poorly on your home loan application. It may also have a permanent impact on your credit score and result in your home loan application being rejected.

  3. Frequent Job Switches: Changing of jobs for better prospects is something every individual seeks. However, it may suggest a sense of unreliability to your potential lender and result in your home loan rejection.

  4. Nature of Employment: Even if your credit score is great and all your other documents are in order, your home loan application could be rejected if your potential lender is uncomfortable with the profile of your employer or of the nature of the business you are engaged in. It is important to remember that your employment profile plays a key role in you securing a home loan.

  5. Insufficient Documentation: The documents you submit along with your home loan application are the primary route for your potential lender to get to know you and assess your profile. If the documents are incomplete or crucial details are missing from it, it may dent your home loan application.

  6. Issues with the Property: Aside from your profile, there are several potential pitfalls associated with the property you wish to purchase. For instance, if the property is too old or not authorized by the concerned authorities, the lender might be hesitant in offering you a loan. This is because if you are unable to acquire the property because of such reasons, you will be unable to repay the loan, thus, causing a loss to your lender financially.

  7. High Debt Levels: The most common home loan rejection reasons often trace back to an applicant’s high debt levels. In case an applicant has multiple loans that he is yet to repay in full and high-interest debts pending, their application is likely to be rejected. This is because a lender might be concerned about the applicant being able to take on more debt in the form of a home loan that they have to repay. In such cases, it is safer for the lender to back out from offering the applicant a loan.

  8. Age: The age of the applicant also has a big role to play in whether or not their loan application will be approved or rejected. For instance, if the applicant is nearing their retirement age, the lender might be concerned about whether or not they will be able to repay their loan comfortably. As a result, their loan application could get rejected.

  9. Incomplete Verification: The documents you submit to the lender are first thoroughly verified by the lending institution. If any of the details do not match, it may lead to a home loan rejection. For instance, if you are unavailable on the landline number you have provided to the lender on your form, your application could be rejected. Other home loan rejection reasons based on incomplete verification could include a mismatch in signature or any other details submitted to the lender.

  10. Seller’s Failure to Obtain “No Dues” Certification: This home loan rejection reason has nothing to do with the applicant, unfortunately. While you can control most forces while making your home loan application, this one is completely out of your hands and pertains to the seller of the property you wish to purchase. If the seller has previously taken a home loan for this property, he is required to obtain a “No Dues Certificate'' from the lender once the loan has been repaid in full. However, a failure to present this document by the seller of the property could result in a rejection of your home loan application.

Scope of Improvement

If you have read the points above and are wondering, “what if my home loan is rejected for any of the reasons mentioned above?,” do not worry. It is possible to take measures and ensure that none of these reasons stand in the way of you availing a home loan and building the house of your dreams. Read on below to learn how you can avoid your home loan application being rejected.

  1. Check for Errors in Your Credit Report and Improve the Score: The most important way to ensure that your home loan application is not immediately rejected is to go through your credit score and report. If you find any errors in your credit or any mismatches in the information presented in the report, immediately report it to your bank or the respective financial institution to get it rectified. Aside from these, take measures to improve your credit score if it is on the borderline or too low.

  2. Check up on the Repayment of Loans You Have Guaranteed: For loans that you have guaranteed to your friends or relatives, check in on them and their repayment status. Ensure that they have been making repayments regularly as per the repayment schedule and ensure that no defaults have happened. Remember that their default affects you too.

  3. Get Your Documentation in Order: Considering that the documentation is the first aspect of an encounter that your lender has with you, it is necessary to guarantee that they are absolutely in order. Gather all the documents that the lender has asked for and ensure that not even one is missing.

  4. Ensure Job Stability: While it is tempting to switch jobs for better prospects, it is important to remember that the lender may interpret it as a sign of instability and consider it as cause for your home loan rejection. Avoid holding off on switching jobs until after you have availed the loan.

  5. Thoroughly Check Details of the Property You Wish to Purchase: Consider hiring an outside consultant for conducting due diligence on the property you have shortlisted for purchase. You could also do it yourself but make sure you ask somebody knowledgeable on what you need to be looking out for. Additionally, do check with your potential lender if the property you have shortlisted is applicable for the loan.

  6. Research on Home Loan Eligibility Criteria Set by Different Lenders: While it may seem easier and convenient to avail the first home loan product you come across, it is best to first thoroughly browse through all the offers on the market. Different lenders can offer different loan amounts with varying rates of interest and even repayment tenures. Even the eligibility criteria for home loans can differ from lender to lender. Thus, it is best to assess each of the lenders present in the market and choose the one that best fits your requirements. It is also important that you do not apply for all the home loans you see in the market since every time you make a query, your credit score will be negatively impacted. Thus, pick the lender that best meets your needs and only then approach them.

Now that you know the most common home loan rejection reasons, start working on your application accordingly and get one step closer to building your dream home. Head to Bajaj MARKETS, where you can avail home loans of up to Rs. 5 Crores that can be repaid over a flexible tenure of up to 30 years.